The euphoria over Ferrari's market debut could soon fade as investors get over the glamour of owning a supercar stock and recognize the issues facing the Italian company.
Ferrari shares closed up at $55 each on its first day of trade this week, giving the company a market capitalization of about $10.4 billion, from an initial public offering price of $52 a share. Overnight, the stock ended more than 3 percent higher at $56.75.
But investors are divided over whether to label the company a carmaker or a luxury brand, a choice that has consequences for Ferrari's financial metrics.
If viewed in the former category, its valuations well exceed rivals. Ferrari is trading around 33 times trailing earnings, versus 9 times for fellow luxury brand BMW, Ford's 19 times and General Motors' 14 times.
"At the end of the day, this company makes cars. They've loaned their brand to clothing and luggage, etc, but this is a company the produces automobiles that people can drive. And with that in mind, we have no choice but to look at the profit multiples of other car companies," explained Brian Hamilton, chairman of financial analysis firm Sageworks.
"Even if we placed a brand premium on the company, their valuation still looks rich compared to peers."
That Ferrari stock is fetching a premium to automakers risks putting pressure on the company's top and bottom lines as shareholders demand greater returns in the years to come.
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"That may disturb some of the balance between supply and demand that Ferrari has very nicely maintained till date," noted Mohit Arora, Asia Pacific executive director at J.D. Power and Associates.
Arora reckons that numbers-savvy investors have been dazzled by Ferrari's reputation for providing power, performance and heritage, as well as the attendant social cache. "The IPO's success shows that people are willing to pay a significant premium for a brand that goes well beyond the company's operational realities."
On the other hand, Ferrari's metrics are more in line with luxury giants like Hermes and Brunello Cucinelli, whose price-to-earnings stand at 37 and 32 times respectively.